Asked by Alexandria Russell on Jun 18, 2024
Verified
All else constant, a reverse stock split:
A) Increases the number of shares outstanding.
B) Increases the book value of the firm.
C) Increases the total market value of the firm.
D) Decreases the earnings per share.
E) Increases the market price per share.
Reverse Stock Split
A corporate action where a company reduces its total number of shares outstanding, thereby increasing the value of each remaining share.
Market Price
The present cost at which a service or asset is available for purchase or sale in the financial marketplace.
- Absorb information regarding how stock splits and reverse stock splits impact market price, liquidity, and the equity of shareholders.
Verified Answer
FR
Fabiola RamirezJun 19, 2024
Final Answer :
E
Explanation :
A reverse stock split reduces the number of shares outstanding, which typically increases the market price per share as the value of the company is now divided among fewer shares. This does not inherently change the book value, total market value of the firm, or earnings per share, except insofar as the per-share values are recalculated based on the new number of shares.
Learning Objectives
- Absorb information regarding how stock splits and reverse stock splits impact market price, liquidity, and the equity of shareholders.